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Tokyo - Japan's securities watchdog has urged that the Japanese arms of Citigroup and US be penalised for trying to manipulate the short-term interest rates for interbank trading.

Former staff members at UBS Securities Japan and Citigroup Global Markets Japan had tried to bring unfair benefit to their firms through interest rate manipulation, the Securities and Exchange Surveillance Commission said on Friday.

A British trader with UBS Securities Japan had asked banks participating in the Tokyo interbank offered rate, or Tibor, to offer rates that would help his derivative transactions, the commission said.

The commission said it had evidence of wrongdoing going back to 2007 but did not know when the moves had started.

He also made similar moves related to the London interbank offered rate or Libor, it added.

The rates are the average interest rate that major banks in Tokyo and London charge for interbank lending, and are widely used as benchmark rates for other loans such as corporate borrowing.

The man later moved to Citigroup Global Markets Japan, where he conspired with his superior in similar moves aimed at benefiting their derivative transactions, the commission said.

It was not clear whether they succeeded in influencing the benchmark rates.

The actions were "seriously unjust and malicious and and could undermine the fairness of the markets," the commission said, urging the Financial Services Agency to administratively penalise the two firms.

The traders have either been dismissed or left Citigroup, news reports said.

The commission also pointed out other irregularities at Citigroup Global Markets, including inadequate responses to the attempts to manipulate the Tibor and Libor rates.

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